First Bank of Nigeria (which tops The Banker's ranking of the country's banks) has its headquarters alongside those of Union Bank in Lagos

The banking landscape in Nigeria has changed dramatically over the past two years; a swift collapse followed the end of a banking boom, then a central bank audit revealed instances of malpractice and poor management, prompting major intervention. Now some banks are leading the way in rebuilding their fortunes and finances. Stephen Timewell reports

The performance of Nigeria's banks was significantly affected in 2009 by higher levels of loan loss provisions and slower revenue growth, while some were also hit by the special audit of the Central Bank of Nigeria (CBN) and the discovery of huge levels of non-performing loans (NPLs), malpractice and capital impairment. The CBN's injection of a liquidity support lifeline of more than N600bn ($3.9bn) and a series of reform measures have helped stabilise the banking sector. But, after this maelstrom, what is happening in the banks today and what does the future hold for them?

This article looks at some of the data available, the changes that have taken place and how the banks see the sector, the opportunities and the outlook for the future. While it is difficult to give a complete data picture, especially with the complications of different year-ends, The Banker has included Tier 1 and capital asset figures for the top 10 banks in Nigeria and their aggregates in 2008 and 2009, showing the devastating changes that have taken place in these larger banks.

These figures do not reflect the smaller entities among Nigeria's 24 banks, but it is important to note that Oceanic Bank and Intercontinental Bank, which were placed third and fourth, respectively, in the 2008 top 10, failed to pass the CBN special audit and are not included in the 2009 top 10.

First Bank of Nigeria and Zenith Bank retained their top rankings in 2009 but both suffered significant declines in their Tier I capital and profit figures, although First Bank showed a minor 5.4% rise in assets in the year to March 31, 2009. With the exclusion of Oceanic and Intercontinental, Guaranty Trust and Access have moved up into third and fourth place, respectively, in the 2009 listing. All banks took hits on their Tier I capital and profits and the aggregates table provides some useful indicators of how the leading banks were adversely affected.

The aggregate Tier 1 capital of the 2009 Nigerian top 10 banks dropped to $11.81bn, a 32.7% fall on the previous year. Similarly, the total assets of the leading 10 (reflecting the exclusion of Oceanic and Intercontinental) fell by 34.2%, to $65.45bn. Aggregate pre-tax profits fell by almost two-thirds, dropping by 63% to $1.01bn, from $2.73bn the previous year. A large part of this decline was caused by a near doubling of loan loss provision, which increased by 97.5% to $1.39bn.

Nevertheless, the leading 10 Nigerian banks stayed profitable in 2009 and their capital-assets ratios remained relatively strong. Despite most banks posting significantly reduced pre-tax profits, the aggregate return on assets was positive at 1.59%, although significantly down on the 2.85% recorded in 2008, a decline of 44.1%. The aggregate capital-assets ratio in fact strengthened slightly in 2009, moving to an acceptable 19.49%, compared with 18.87% in 2008.

Adding up the stats

How should these figures be interpreted? While the CBN audit has changed the picture, the leading Nigerian banks still have minimum regulatory capital adequacy above the 10% threshold. And while further changes may occur, the rating agency Standard & Poor's (S&P) said earlier this year: "The rated Nigerian banks [the leading four in The Banker listing plus First City Monument Bank] have maintained adequate solvency indicators that still compare favourably with most emerging markets."

S&P adds: "In 2010, we expect a general return to lending growth by the rated Nigerian banks - although not at this stage to the aggressive levels seen between late 2005 and early 2008 - which could pressure capital ratios if internal capital generation does not markedly improve."

To obtain a bank perspective on the huge changes in the Nigerian banking sector, The Banker spoke to a number of banks in Lagos:

Access Bank

The fourth largest bank in the country, Access Bank is seen by chief executive officer (CEO) Aigboje Aig-Imoukhuede as the most significant of the medium-sized banks, with strong capital and liquidity and a capacity to increase lending. The bank closed 2009 with a capital adequacy ratio of 26% and liquidity ratio of 43%, well above both local and global standards. The CEO believes the bank's good governance, strong capital, first-class risk management and customer-driven employees stand out as distinguishing pillars of a sustainable business model.

Despite recording a loss for the full-year 2009, Access is confident that 2010 will see increased opportunities for lending, especially in infrastructure. While the bank acknowledges that bank lending has been reduced to a basic level, it notes that it has increased lending in 2010 through its 120 branches. Access sees huge opportunities to expand its share of the top corporate segment and, with a newly upgraded website, maintain its leading role in treasury, trade finance and electronic cash management.

Ecobank Nigeria

Part of Ecobank Group, the Togo-based bank that operates in 30 countries across Africa, Ecobank Nigeria is the largest subsidiary in the group, accounting for 30% of assets and 43% of group capital, according to managing director Jibril Aku. With 234 branches and N409bn in assets (as at the end of June 2010), Ecobank Nigeria is striving to become one of the top three banks in Nigeria and is keen to use its pan-African network to expand. Mr Aku also notes that the Ecobank Group is in discussions to buy one of Nigeria's rescued banks. Such an acquisition would give a big boost to Ecobank Nigeria's ambitions.

Despite making a N6bn loss in 2009 as a result of increased provisioning, Mr Aku is optimistic that his bank can capitalise on its travel card and money transfer offerings across its broad African network, along with expansion in the power sector.

He says: "[This year] is a turning point. The economy will improve on 2009; we are not back to where we were, but we are on the way." Looking forward to 2011 from the bank's perspective, he adds: "In an election year we will begin to see progress from the recent problems. We still need power industry reforms but we do not expect a return of the problems in the financial sector. [Next year] is expected to be back to normal, not big profits but a normal operating year, assuming there are free and fair elections."

 

 

 

First Bank of Nigeria

First Bank is Nigeria's largest bank in terms of assets, loans and deposits and also has an extensive network, with 610 branches across the nation, more than 1000 ATMs and international locations in London, Paris, Johannesburg and Beijing. In its latest results, presenting data for the end of March 2010, First Bank had assets of $15.3bn, a 14% market share, along with loans of $8.4bn and deposits of $9.4bn from its large customer base of more than 5 million customers.

Like other banks, First Bank suffered a steep increase in loan loss provisions, driven by deterioration in asset quality following the economic slowdown and the downturn in equity markets. As a result, pre-tax profits fell 72.6% in 2009 to N11.6bn, even though net revenues rose 15.3%. But, despite this, First Bank's liquidity and capital remained solid and the first quarter of 2010 has provided an improved outlook. The first quarter saw pre-tax profits of N15.4bn, an improved capital adequacy ratio of 17.7%, a declining NPL ratio of 6.9% (from 8.2% at the end of 2009), along with a strengthening return on equity of 15.9% (compared with 1.4% in 2009). With loans rising 15.8% in the first quarter of 2010 to reach N1261bn, First Bank is showing steady growth, indicating that it appears to have successfully navigated the recent turbulence and has a strong platform for growth.

Guaranty Trust Bank

Now the third largest bank in Nigeria by Tier 1 capital, Guaranty Trust managed to overcome the daunting dynamics of the sector and produce solid results for 2009. Managing director Tayo Aderinokun says: "We were able to close the year with a decent pre-tax profit of N28bn, while total assets and contingents grew to N1400bn. The success of our cost-containment strategies also ensured that we maintained and sustained our efficiency, with a cost-to-income ratio of 0.67:1."

Guaranty Bank's performance remained strong in the first half of 2010. Pre-tax profits in the half of N25.7bn were "largely driven by the resilience and quality of our balance sheet in addition to the sustained confidence of our customers, which translated into 5% growth in our deposits during the half [year]", says Mr Aderinokun.

Skye Bank

A new entrant to the top 10 Nigerian banks, coming in in ninth place, Skye is a relatively new institution, formed in 2006 from the merger of five banks. It is a commercial bank with 260 branches across Nigeria, although, in line with other banks, 50% of its branches are in Lagos.

Skye is focused on small and medium-sized enterprises (SMEs), which it believes form the most important sector in terms of economic development. Executive director Timothy Oguntayo believes the government's stimulus in improving the country's power supplies will help SMEs become more cost-efficient and productive and he hopes to expand lending to this sector beyond the current 25% of the bank's loan portfolio.

With good corporates now able to borrow at rates of between 10% and 12%, down from double that figure previously, Mr Oguntayo sees good opportunities in many areas and expects 2010 to be a year of major recovery for Skye, with the bank achieving a possible return on equity of 15%, well up on 2009, when pre-tax profits were just N845m.

Mr Oguntayo is optimistic that the CBN's guarantees for SME lending, along with the creation of the Asset Management Corporation of Nigeria (AMCON) will bring enormous benefits to the banking sector and the economy, but he stresses the need to encourage manufacturing and agriculture. "There is no reason why Nigeria cannot feed itself and sell products such as palm oil, rubber and coffee, like it used to do," he says. He also sees potential in expanding the number of people that have bank accounts. "If you ignore double-counting, only about 10% of the 150 million population have bank accounts and they are mostly in Lagos, Port Harcourt and Abuja. People will use banks more, but they need to have incomes first."

Stanbic IBTC Bank

A subsidiary of South Africa's Standard Bank formed through a 2007 merger with local merchant bank IBTC, Stanbic IBTC is now 10th in The Banker's Nigerian top 10 listing and has the fifth largest market capitalisation, according to chief executive Chris Newson.

The bank is strong in wealth and asset management, investment banking and corporate banking and Mr Newson sees great opportunities in consumer and personal banking catering to Nigeria's population of 150 million. But although Stanbic IBTC has doubled its number of branches to 117 since 2007, it has a relatively small market share and how the bank handles the CBN's abolition of universal banking remains to be seen.

Nevertheless, Stanbic IBTC easily passed the CBN special audit and maintains significant excess capital and liquidity. At the end of 2009, the bank posted profits of $69.8m and a return on assets of 3.03%, the second highest in the Nigerian top 10. With a healthy capital-assets ratio of 23.6%, Stanbic IBTC is solidly placed for the future.

Union Bank of Nigeria

A decade ago, Union Bank was the country's largest bank but today its fortunes have been reversed, failing the CBN's special audit and, according to rating agency Fitch, reporting post-tax losses of N222.9bn for the period to the end of September 2009. It has a strong brand and one of the country's largest networks (425 branches) plus a UK operation, but Union Bank needed to be bailed out by the CBN and has to be significantly recapitalised.

Funke Osibodu, the new chief executive, has been working on the restructuring for some time and is cautiously optimistic that a recapitalisation of the bank is possible by the end of 2010. But, like other Nigerian bankers, she is wary of the uncertainties that still exist despite all the financial reforms, such as AMCON, that have been put in place. She says: "A recapitalisation by the end of 2010 is possible, but there are many caveats."

Islamic finance

With 50% of Nigeria's 150 million population being Muslims, it would seem reasonable to expect that Nigerian Muslims would be interested in Islamic banking.

The Banker's research on the world's top 500 Islamic financial institutions shows that the sharia-compliant assets of these institutions globally rose by 28.6% in 2009 to $822bn. The industry's assets are estimated to hit $1033bn in 2010.

So where does Nigeria figure in this growing global market? Rather surprisingly, there are no Islamic financial institutions from Nigeria in The Banker's top 500 Islamic Banks listing, despite an estimated 70 million Muslims in the country (double the population of the Gulf Co-operation Council).

A few Nigerian banks are understood to offer 'Islamic' savings products, but there is no framework in which this potential market segment could operate. The CBN has not formally given the go-ahead for Islamic banking. Stanbic IBTC, according to chief executive Chris Newson, has set up a sharia board to look at sharia-compliant banking and Unity Bank is also understood to be looking at 'Islamic' products. If other Muslim countries are any guide, this is a market with huge potential in Nigeria.

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